The IRS is opening a supplemental claim process to help payroll companies and third-party payers and their clients resolve incorrect claims for the Employee Retention Credit (ERC), the agency announced on Sept. 26.
The move comes more than a month after the IRS announced it has once again opened the ERC voluntary disclosure program through Nov. 22. Businesses that incorrectly claimed and received the pandemic-era tax credit can voluntarily repay 85% of it back to the agency without having to pay any penalties or interest—or worry about being audited.
Third-party payers report and pay clients’ federal employment taxes under the third-party payer’s employer identification number. The IRS said on Thursday that some third-party payers filed ERC claims for multiple business clients. If one of their clients has since determined it claimed the ERC in error and wants to resolve that claim, the third-party payer needs to correct it, the agency said.
This supplemental claim process lets a third-party payer that filed a previous claim for multiple clients “withdraw” some of those claims for clients that ended up not qualifying for the ERC while maintaining the claims of their qualifying clients.
“The supplemental claim program is a critical step to improve the IRS’s ability to process Employee Retention Credit claims for this more complex segment of taxpayers,” IRS Commissioner Danny Werfel said in a statement. “As we continue to accelerate and intensify our work in this area to help qualifying small businesses and protect against improper claims, we continue to explore and develop additional ways to speed our work on this incredibly detailed credit where the number of claims exploded following aggressive marketing.”
According to the IRS, a supplemental claim is an adjusted employment tax return that allows a third-party payer to correct and/or consolidate previous claims that they filed on or before Jan. 31, 2024, if those claims haven’t yet been processed by the agency.
By filing a supplemental claim, the third-party payer is asking the IRS not to process outstanding adjusted employment tax returns for the tax period. The IRS will treat claims filed before the supplemental claim as if they were never filed.
The supplemental claim process is for third-party payers to which all of the following apply:
- The third-party payer has filed one or more claims aggregating ERCs for itself and/or clients using the third-party payer’s employer identification number.
- The third-party payer made the claim on an adjusted employment tax return (forms 941-X, 943-X, 944-X, or CT-1X).
- The IRS hasn’t processed any of the claims the third-party payer is including in the supplemental claim.
The supplemental claim process isn’t for:
- Common law employers that didn’t use a third-party payer and instead filed adjusted employment tax returns using their own employer identification number. These employers may be eligible for either the claim withdrawal process if their claim is pending or for the second voluntary disclosure program if they received the ERC either as a refund or a credit against tax owed.
- Third-party payers that received the full amount of ERC claimed on behalf of themselves and their clients—either as a refund or a credit against tax owed. They may be eligible for the voluntary disclosure program.
A third-party payer must prepare one supplemental claim for each tax period filed on or before Jan. 31, 2024. Each claim must include the correct amount of ERC and any other corrections for that tax period. The third-party payer should use the adjusted employment tax return for their type of business—Form 941-X, Form 943-X, Form 944-X, or Form CT1-X—to prepare the supplemental claim.
The third-party payer shouldn’t include ERC amounts that were filed after Jan. 31, 2024, the IRS said. The amount of ERC on the supplemental claim must be equal to or less than the cumulative amount of ERC claimed on the returns the third-party payer is replacing by filing the supplement claim.
Third-party payers can submit a supplemental claim using a computer or mobile device to fax the documents by 11:59 p.m. on Nov. 22, 2024.
For more information, see Filing a supplemental claim for the Employee Retention Credit and Supplemental claim frequently asked questions for third-party payers.
The IRS will then review the supplemental claim to make sure it has all items necessary for it to be processed.
If the supplemental claim is complete, the agency will review the claim and determine if it will be accepted as filed, partially allowed/disallowed, or if the supplemental claim needs additional review or examination.
The supplemental claim becomes the sole adjusted employment tax return for the tax period. The IRS said it will review the supplemental claims instead of adjusted employment tax returns filed on or before Jan. 31, 2024.
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Tags: IRS, Payroll, Small Business, Taxes
